#542
Ready, Set, Trade!
Published:
Jun 01, 2024
Author:
Sarah Parsons Wolter
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In a historic shift, Wall Street has officially transitioned to T+1 settlement, shortening the time it takes to finalize stock trades from two days to one. This change, aimed at reducing counterparty risk and enhancing market liquidity, marks the most significant adjustment in trade settlement in over a century.
This shift is crucial for the future health of markets, representing a long-sought victory for regulators. By lowering trading costs and making the settlement process more efficient and reliable, it enhances the overall market infrastructure. The move to T+1 settlement will encompass stocks, corporate bonds, exchange-traded funds, mutual funds, and options.
However, this transition will require significant adjustments from US market participants. International investors, who hold approximately $27t in American markets, may struggle to source dollars on time and global funds will move at different speeds compared to their assets. Additionally, without proper solutions, financial institution staff relying on legacy processes will likely face increased pressure to meet tight deadlines, potentially raising the risk of mistakes due to human error.
As the rest of the world’s stock markets adapt to this new speed, one can't help but wonder: will international authorities keep up or will it all look a bit like the commodities trading pit in “Trading Places” when Winthorpe yells "Sell 30 April at 142!"
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